FINANCIAL MANAGEMENT 4 INDIVIDUAL ASSIGNMENT 1

ALL ASSIGNMENT MUST BE TYPES (No hand written assignment will be

accepted)
Due date: 17/08/2016. No late assignment will be accepted
Any form of Copy work will result to zero
Question: 1 (4 marks)
Brian borrows R5,000 from a bank at 8 percent annually compounded interest to
be repaid in five annual installments. Calculate the principal paid in the third
year
PV= 5000, I=8, N=3, FV=0, CPT PMT = R1,252.19

The principal paid in the third year is R993.99.

Question:2 (4 marks)
Herbert has opened a retirement fund account which pays 7 percent interest and
requires R5,000 annual deposits. Herbert will retire in 15 years and expects 10
years of retirement life. What is the maximum annual retirement benefit Herbert
can get during his retirement years?

Answer: I = 7%, PMT = R5,000, N = 15, PV=0

At the beginning of retirement:
CPT FV = R125,645
Annual retirement benefit: i = 7%, n = 10, PV = R125,645, FV=0
CPT PMT = R17,887.96
Question:3 (7 marks)
Mr. & Mrs. Pribel wish to purchase a boat in 8 years when they retire. They are
planning to purchase the boat using proceeds from the sale of their property
which is currently worth R90,000 and its value is growing at 7 percent a year.
The boat is currently worth R200,000 increasing at 5 percent per year. In addition
to the value of their property, how much additional money should they deposit at
the end of each year in an account paying 9 percent annual interest in order to
be able to buy the boat upon retirement?
PV = R90,000, I = 7%, N = 8, PMT=0
CPT FV = R154,620
Value of the boat upon retirement:
PV = R200,000, I = 5%, N = 8, PMT=0
CPT FV = R295,400
Additional money needed upon retirement:
R295,400 - R154,620 = R140,780

Amount of money needed to deposit at the end of each year:

PV=0, FV = R140,780, N = 8, I = 9%, PMT = ?
PMT = R12,765.69
Question:4 (2 marks)
Tom is evaluating the growth rate in dividends of a company over the past 6
years. What is the annual compound growth rate if the dividends are as follows:
(Ignore the dollar sign)

(R2.15/R1.38)1/5-1 = .0927=9.27% OR PV= -R1.38 , FV=R2.15, N=5 , I=9.27%

Question:5 (7 marks)
You are considering the purchase of new equipment for your company and you
have narrowed down the possibilities to two models which perform equally well.
However, the method of paying for the two models is different. Model A requires
R5,000 per year payment for the next five years. Model B requires the following
payment schedule.

Which model should you buy if your opportunity cost is 8 percent? (ignore the
dollar sign)
Answer: Model A: PV = PMT=5000, I=8%, N=5, pv =? =R19,965

Buy Model A.